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Rock steady

Despite a series of disasters for two of the biggest investment groups in Scotland, Edinburgh&#39s fund managers remain confident that Scotland&#39s investment community is fit enough to come out fighting.

In spite of a relatively upbeat trading statement for the last quarter, the splitcap saga rolls on and new fears over dividends cuts sent shares at ailing Aberdeen Asset Management to an all-time low last week.

Aberdeen is not the only Scottish group struggling to keep its head above water. The highly publicised departure of Tony Watson from Edinburgh Fund Managers last month followed a failed attempt by non-executive director Watson to buy EFM. He blamed “disagreements with the rest of the board over the strategic policy and direction of the company” for his eventual departure.

The rapid descent of the company has left investors reeling and fuelled rumours that there is about to be a fire sale, from which EFM will retain only a small part of the business.

Scottish Life sales director Jim Gilchrist blames an internal power struggle for the catalogue of problems. He says: “EFM chairman Iain Watt has led that company downhill at a rate that would make the Grand Old Duke of York dizzy.”

Gilchrist thinks the only answer for the investment group will be a new partner but he does not believe this is Watt&#39s plan.

He says: “It is no good going along haemorrhaging the best people left, right and centre, such as star fund manager Alastair Thompson, its lead manager on the Asia-Pacific desk, jeopardising the management of its leading £220m Dragon investment trust. They have gone because they do not think that EFM has a long-term future.”

But he believes that Edinburgh as an investment centre is hardier than ever and will be more resilient than London to further stockmarket dips. He says: “There is no question that Edinburgh itself will continue to boom.”

One Edinburgh firm gaining clients on the back of EFM&#39s demise is Baillie Gifford. It has continued to buck market trends over the past 12 months with funds under management increasing to £1.4bn.

Although he declined to make comparisons, Baillie Gifford Investment development manager Robert O&#39Riordan says: “I think there is more of a focus on team culture here rather than the individual star approach, which in my opinion does encourage more tolerance and independence. The problem is that a star can always decide to go and be a star somewhere else.”

The Baillie Gifford company profile, with more than 80 per cent of employees under 40 and a high number of graduates, is distinctly different to other Scottish investment houses.

O&#39Riordan says one of the major differences in being a partnership is planning for the long term without the additional pressures that companies with shareholders have.

On Edinburgh itself, O&#39Riordan says: “I think the centre of gravity has shifted. Information technology has changed the way that people view working for you. It no longer matters where you are. On the kind of salaries that fund managers earn they can afford a better quality of life and they want to live in Edinburgh.”

O&#39Riordan says cautiously that the future outlook is too hard to call but that Baillie Gifford is hoping for similar gains in the next six months. He remains sceptical of “canny Scot” stereotyping that paints Scottish investment houses as more conservative and less adventurous than London-based firms.

He says: “To write off Scotland is a wee bit short-sighted. We have revenue collapses everywhere and this will mean job losses. Just look at Standard Life, Scottish Widows and Aegon – all of them are managing assets out of Scotland. Ok, so we are all having an awkward time at the moment but I do not think that being owned by a bank would be any better.”

Bennett thinks that even the woes of Aberdeen Asset Management will have little effect on the rest of the Scottish investment groups and says: “Edinburgh Fund Managers is just one story in the grand scheme of things. Star fund managers have left UBS as well. The question is, are EFM&#39s woes any greater than any one else&#39s? The chopping and changing is certainly driving everyone bananas, especially IFAs.”

Bennett says IFAs have a simple choice and that they will vote with their feet. “They will stick with the big companies because it is clear that everyone will have to be in the best possible position to weather the storm of dipping markets.”

He thinks the new waterfront development area in Edinburgh alone is a strong indication of confidence in the city as a financial centre. “It is looking like the Wall Street of Scotland down there,” he says, adding “of course, in the past, all the major life offices were based in Scotland and these do tend to be more conservative than retail boutiques. But the prognosis is compelling and Edinburgh an exciting place to be.”

Scottish Enterprise chief executive Ray Perman maintains that one of the characteristics of Edinburgh as an investment centre is a traditional approach to investment.

“During the dotcom boom we did not see the huge gains, the massive up swing that other investment centres experienced. But now the bubble has burst we are reaping the benefits from more cautious long term investments,” he says.

Funds under management in Scotland total a hefty £320bn and the Scottish Enterprise report shows that funds under management in Scotland for the first six months of this year were down by just £6bn – just 5 per cent on the quarter.

But although this all looks very positive there is no getting away from the fact that investment trusts have fallen by 20 per cent from a year ago and that markets have continued to fall since the figures were published.

Perman says the trend towards fewer investment trusts has been happening over a number of years and attributes part of the decline to EFM losing the mandate for Edinburgh Investment Trust to Fidelity, which cost it £5.1m in management fees.

An Oliver, Wyman & Co study of the investment sector has predicted slow growth for active funds, gaining only 2-4 per cent by 2006. These make up a big chunk of the Scottish investment market.

The answer could be a move towards niche markets. Those companies that have made big commitments to the sector such as Talorcan and Scottish Value could be the real winners, as the report suggests the most significant growth will be in hedge funds, with asset growth of 38 per cent and revenue growth of 31 per cent by 2006.

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19th November 20182:58 pm

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